Cost of FX-protected deposit scheme declining: Nebati

ISTANBUL

The cost of the FX-protected deposit account (KKM) scheme on the budget continues to decline, Treasury and Finance Minister Nureddin Nebati has said.

The volume of deposits under the KKM reached 2.3 billion Turkish Liras (around $120 billion), Nebati wrote on Twitter.

“The total cost of the KMM to the budget has been 95.3 billion liras. With the removal of the upper limit of interest, the KKM is not expected to create a serious cost to the budget in the upcoming period.”

If the KKM scheme had not been implemented and the increase and fluctuation in the exchange rate had continued, this would have had a large negative impact on Türkiye’s external debt stock, Nebati said.

He noted that such a scenario could have coincided with a period where the Russian-Ukraine war triggered the increase in commodity prices and the tightening of global financial conditions.

“Under those conditions, the costs of the companies, including energy and other imported inputs, could have risen sharply, and our real sector would have to borrow more at higher costs,” Nebati said.

The KKM was introduced at the end of 2021 due to the high volatility in the FX market, and the KKM scheme eliminated this panic atmosphere and helped stabilize foreign exchange rates.

With the introduction of the KKM, the share of foreign currency deposit accounts in total deposits significantly declined. “Also, the maturity mismatch in the banking sector was reduced as the KKM scheme contributed to the prolongation of the average maturity of lira deposits.”

The minister added that the government has managed to lower the share of interest expenditures in the budget from 43.2 percent in 2022 to 10.6 percent without compromising on budget discipline.